Alnylam Pharmaceuticals Inc (ALNY) 2007 Q4 法說會逐字稿

Welcome to the Alnylam Pharmaceuticals Conference Call, to discuss fourth quarter and year-end 2007 financial results. There will be a question and answer session to follow. Please be advised this is being taped at the Company's request.

I would now like to turn the call over to Alnylam.

Good afternoon. I'm Cynthia Clayton, Director of Investor Relations and Corporate Communications for Alnylam. With me today from Alnylam, John Maraganore, our Chief Executive Officer, Barry Greene, our President and Chief Operating Officer, Akshay Vaishnaw, our Vice President, Clinical Research, Patti Allen, our Vice President, Finance and Treasurer, Stuart Pollard, our Vice President, Business and Scientific Strategy, and Kleanthis Xanthopoulos, our Regulus President and Chief Executive Officer.

During today's call, John will open the call with an overview of 2007. Akshay will provide an R&D summary. Patti will review our financials and guidance. Barry will summarize our business highlights for the year. Kleanthis will summarize some recent highlights for Regulus. John will wrap up with an overview 2008 and RNAi 2010 goals, and we will then open the call for your questions.

Before we begin, let me remind that you various statements we make concerning our future expectations, plans and prospects, including, without limitation, the need for novel RNAi therapeutics, our views with respect to the potential for RNAi therapeutics, including ALN-RSV01, and our expectations with respect to the timing and success of our clinical and preclinical trials.

The timing of regulatory filings, our expectations regarding the development of efficient delivery of RNAi therapeutics, the formation of new alliances, and our cash position at the end of 2008 constitute forward-looking statements for the purposes of the Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including risks related to our approach to discover and develop novel drugs, which is unproven and may never lead to marketable products, obtaining, maintaining and protecting intellectual property utilized by our products, our ability to enforce our patents against infringers, and to defend our patent portfolio against challenges from third parties.

Our ability to obtain additional funding to support our business activities, our dependence on third parties for development, manufacture, marketing, sales, and distribution of our products, the successful development of products, all of which are in early stages of development, obtaining regulatory approval for products, competition from others using technology similar to ours, and others developing products for similar uses.

Our dependence on collaborators, and our short operating history, as well as those risks more fully discussed in the risk factor section of our most recent report on Form 10-Q on file with the Securities and Exchange Commission. In addition, any forward-looking statements represent our views only as of today, and should not be relied upon as representing our views as of any subsequent date. We do not assume any obligation to update any forward-looking statements.

I will now turn the call over to John.

Thanks, Cynthia. Welcome, and good afternoon, everyone. Let me begin by welcoming Stuart Pollard, Alnylam's Vice President of Business and Scientific Strategy, and Kleanthis Xanthopoulos, our Regulus President and CEO to this afternoon's call. Let me also begin by congratulating Barry Greene for his promotion to President and Chief Operating Officer of Alnylam. We are truly fortunate to have these people as part of the Alnylam family.

We are off to a great start for 2008 and look forward to what we believe will be another spectacular year. I think it's fair to say that 2007 was a game-changing year for Alnylam. We are making great strides in building the leading company in RNAi therapeutics, and in our mission of building a leading biopharmaceutical company founded on RNAi. 2007 was a year in which we achieved major progress across all fronts, especially in advancing our science, our clinical pipeline and our business initiatives. And that momentum has already continued into 2008.

In a major step forward for both Alnylam and the entire field of RNAi, we recently reported that we achieved statistically significant anti-viral activity for ALN-RSV01 in our Phase II experimental study. We are planning to advance this program into a Phase II natural infection study shortly in the first half of this year.

On the business side, our alliance with Roche represents the largest drug discovery alliance in biotech history and the broadest collaboration on RNAi therapeutics to date. Further, we are delighted to have launched together with Isis our Regulus Therapeutics joint venture focused on an entirely new frontier for pharmaceutical research, namely microRNA therapeutics.

And, finally, our scientific and IP leadership of RNAi therapeutics continues to be unparalleled with multiple presentations at conferences, papers in the world's leading scientific journals and many patent issuances and grants in major markets for our small interfering RNA and microRNA therapeutic programs.

Based on these accomplishments, we are more confident than ever, regarding the broad potential of the RNAi opportunity and in our leadership in realizing the technology's promise. In addition to a robust set of goals for 2008, we have recently launched our RNAi 2010 plan as a new initiative focused on achieving important scientific, clinical and business milestones by the end of 2010, which I will review later in this call.

Let me now turn the call over to Akshay Vaishnaw to review our product pipeline and scientific leadership highlights.

Thanks, John. We view the clinical advancement of ALN-RSV01 as the key highlight of 2007. We drove development of ALN-RSV01 for the treatment of respiratory syncytial virus infection with Phase I inhalation data, and completed enrollment of our experimental infection GEMINI study in 2007. And, we recently followed this by reporting top line Phase II results that we just reported a few weeks ago. Indeed these top line data from the GEMINI trial showed statistically significant anti-viral activity for ALN-RSV01.

The GEMINI study was a double-blind, placebo-controlled, randomized study of ALN-RSV01 or placebo in 88 adult subjects experimentally infected with a wild type clinical strain of RSV. With efficacy measures that included the incidence of viral infection, and the affects of ALN-RSV01 on the degree of viral infection and resulting clinical systems.

The study was performed using ALN-RSV01 or placebo administered intranasally for five consecutive days, two days prior and three days following viral inoculation. We look forward to presenting the detailed results of the GEMINI study at the International Symposium on Respiratory Viral Infections Meeting that will take place from February 28 through March 2, 2008, in Singapore.

The results were positively robust clinical program for ALN-RSV01. In addition to GEMINI, we also completed a Phase I inhalation study in 2007, but all major objectives were met, including definition of a safe and well-tolerated virus to carry forwards for further development.

Taken together, these Phase I and II studies provide the basis for ALN-RSV01's advancement into a Phase II study in naturally-infected adult populations, which we expect to initiate soon in the first half of this year.

In 2007, we were also quite pleased to advance our preclinical pipeline with the announcement of two new development programs from our discovery efforts, namely ALN-HTT and ALN-VSP. ALN-HTT, an RNAi therapeutic targeting the huntingtin gene for the treatment of Huntington's disease is being developed in partnership with Medtronic.

Preclinical data presented last year showed that siRNAs targeting huntingtin, the gene responsible for Huntington's disease, reduced the expression of mutant Huntington in the brain, showed a reduction in neuronal pathology and an improvement in motor behavior, as well as a sustained benefit in motor behavior for at least one week. It was also well tolerated in the brain after direct CNS administration.

Our second new development program in 2007, ALN-VSP, is a systemically delivered RNAi therapeutic for the treatment of liver cancer and potentially other solid tumors. This is an exciting program as we are developing a drug that is extremely unique in cancer therapy. Indeed, ALN-VSP is designed to target VEGF and kinesin spindle protein or KSP, two well validated genes that were involved discrete pathways of tumor pathology, self-proliferation and angiogenesis.

The clinical data showed the ability of RNAi therapeutics to silence both VEGF and KSP expression in the liver, and to stop cancer cell proliferation by targeting KSP. We are very excited about moving this program forward and look forward to sharing additional data on this program soon.

We also made continued progress in other key programs, notably in PCSK9, where we presented non-human primate data at the Drugs Affecting Lipid Metabolism in late 2007. And, here we demonstrated efficient silencing of PCSK9 with rapid and durable reductions in LDL cholesterol levels by approximately 50%.

We also made notable progress in our Parkinson's disease program for which we and our collaborators obtained a $3.8 million LEAPS award grant from the Michael J. Fox Foundation. We also continued to advance our scientific leadership on RNAi therapeutics, both siRNAs and microRNAs through publications in the world's top journals, including Nature, Nature Biotechnology, PNAS and Cell.

And during the fourth quarter, additional data in the Company's preclinical programs were published or presented in numerous scientific meetings, including AACR and the Society for Neuroscience.

Importantly, in 2007, we also advanced our platform for systemic delivery of RNAi therapeutics, with a worldwide exclusive license to Tekmira's liposomal delivery formulation technology, and an exclusive five-year research agreement with the MIT Center for Cancer Research focused on the delivery of RNAi therapeutics.

And with that summary, I'll turn over the call to Patti to review our financials.

Thanks, Akshay, and good afternoon, everyone. 2007 was also a strong year from a financial point of view. We ended 2007 with over $455 million in cash, more than double the balance we had at the end of 2006. Looking forward into 2008, our solid financial position affords us the opportunity to strengthen the investments we make to grow our clinical and preclinical pipeline and technology.

In the fourth quarter, we reported a quarter of net income rather than net loss due to strong GAAP revenues, primarily from the Roche alliance, and the associated increase in interest income during the quarter as a result of the net proceeds from the Roche alliance.

While we are pleased to have achieved a profitable quarter, we expect to continue in the near term with significant investments in our technology and our pipeline as a development stage company. Indeed, we do expect to be in an investment mode for the foreseeable future, and would expect to see an increase in quarterly R&D expenses in 2008 from the amount reported in the fourth quarter. Thus, our Q4 net income results should not be viewed as a consistent trend.

Revenues of $18 million for the fourth quarter were strongly driven by the Roche alliance, which accounted for over 60% of total revenues. Expense reimbursement and amortization revenues from Novartis, the NIH, the DOD, Biogen Idec, InterfeRx, research reagent and services licensees, and other sources accounted for the remaining revenues in the quarter.

Revenues for the year were greater than $50 million, and substantially increased from the prior year due to our collaborations and government grant funding, impacted most importantly by our new alliance with Roche.

In 2008 and beyond, we expect revenues from Roche to account for a significant portion of our total revenues over a five-year period. And, we expect to report approximately $14 million in GAAP revenues from our Roche alliance each quarter in 2008 and going forward.

R&D expenses through the fourth quarter and for the year ended 2007 increased substantially over the prior year periods as we conducted Phase I and Phase II trials for ALN-RSV01 and advanced the Company's preclinical programs for PCSK9, liver cancer and Huntington's disease. Also contributing to the increases were expenses associated with the Company's collaborations related to its important delivery efforts.

As a reminder, R&D expenses for the year also increased due to the $27.5 million of license fees payable to our licensors, primarily Isis, as a result of our alliance with Roche in July. Higher professional fees and higher costs related to an increase in business development and intellectual property activities contributed to the increase in G&A expenses for the fourth quarter. The increase for the year overall was due primarily to business activities related to Roche and Regulus.

We do not expect to see a significant increase in G&A expenses during 2008 over levels seen in 2007, although amounts may be lumpy from quarter to quarter, primarily due to the activities ongoing in business development. On the non-cash side, the increase in non-cash stock-based compensation charges in 2007 was primarily related to charges incurred with the sale of the Company's German operations to Roche.

As I mentioned last quarter, as a result of the sale of our German operation to Roche this past year, we recorded approximately $5 million of tax expense in our P&L in 2007. And, we expect to pay about $3 million in cash to the German tax authorities in early 2008.

We have a favorable tax strategy related to the proceeds from the Roche alliance. And, as expected, we did not incur any significant income tax expenses during the fourth quarter of 2007, as we are deferring a significant portion of the Roche revenues until 2008 for tax purposes.

Therefore, we do not expect to pay any significant federal income taxes until the first quarter of 2009. We will, however, make modest federal along with quarterly state cash tax payments in 2008, totaling approximately $4 million. And, we will record quarterly income tax provisions in accordance with GAAP, totaling up to $8 million for 2008.

In regards to our share count, at December 31, 2007, we had 40.8 million shares outstanding. Looking forward into 2008, given our high level of plans, R&D and delivery activities with liver cancer, PCSK9 and Huntington's programs in development and ALN-RSV01 moving into Phase II clinical trials in naturally-infected patients, we are prepared to heavily invest in R&D in 2008. We expect to end the year with over $390 million in cash, resulting in a net cash burn of about $65 million this year.

I will now turn the call over to Barry, who will discuss our business highlights.

Thanks, Patti. As John mentioned, one of the most important business highlights for the year, and in fact, a transformational event for the Company was our major alliance with Roche valued at over $1 billion.

We believe this represents the largest drug discovery alliance in biotech history, and certainly the broadest collaboration on RNAi therapeutics to date. This alliance included a non-exclusive license to existing fundamental chemistry and delivery IP for RNAi therapeutics in four defined fields, as well as the acquisition of our German facilities by Roche.

Importantly, this alliance does not limit us in any way from carrying forth our strategic objectives and it does not limit our freedom to develop any target in any therapeutic area. Importantly, Alnylam also retains the rights to do similar alliances in the future. And, of course, we have full rights to expand our proprietary pipeline and scientific leadership in delivery in other areas for many years to come.

In 2007, we also launched Regulus Therapeutics, a joint venture with Isis focused on microRNA therapeutics, and shortly, Kleanthis will update you on this effort. As part of our initiative to create valuable partnerships that support our mission in building Alnylam into a leading biopharmaceutical company, we advanced and revised our 2005 collaboration with Medtronic into a 50/50 co-development and profit share relationship with the United States market.

As you know, we are developing a novel drug-device combination for the treatment of Huntington's disease, consisting of an RNAi therapeutic targeting the huntingtin gene, which will be delivered by Medtronic's implantable infusion pump. This effort was named as a new development program with the lead compound ALN-HTT, which Akshay highlighted.

This revised relationship creates greater value for Alnylam in allowing us to participate significantly in the downstream success by way of profit sharing. As further evidence of the considerable progress we're making and our ability to manage investments carefully, we were awarded a significant federal and grant funding during 2007, including a $38.6 million contract from the U.S. Defense Threat Reduction Agency, and as Akshay noted, a $3.8 million LEAPS grant from the Michael J. Fox Foundation.

This kind of government and foundation support is an important part of our business model and certainly provides support for us to execute on our delivery, product development and overall research goals.

Finally, we continue to be the intellectual property enabler for RNAi by providing licenses to other companies. As part of our collaboration with Tekmira, for example, we granted three InterfeRx license options. We also granted research reagent licenses to Bio-Rad, Hayashi-Kasei and Gene Design. We believe that over 75% of industrial sales of siRNAs for research purposes are now made under a license to Alnylam's intellectual property.

Dominating IP in the RNAi space has been a strategy for Alnylam from the very beginning. And in 2007, we certainly pursued this strategy vigorously and had continued success. The European office granted the Tuschl II patent in Europe, which broadly covers compositions, methods and use of siRNAs.

The German Patent Office granted to two Kreutzer-Limmer I patents broadly covering RNAi therapeutics in Germany. The U.S. Patent Office allowed claims for patents covering lipid-based delivery of RNAi therapeutics derived from the Wheeler patent series.

And just last week, the UK Patent Office granted a patent for the Woppmann patent series, which cover siRNA molecules of any length that cover overhang and blunt-end design features, including siRNAs containing chemical modifications and certain novel motifs.

On the IP front, we will continue to aggressively prosecute and deliver on the leading and dominating intellectual property for RNAi. Importantly, we are confident that our IP will continue to strengthen substantially, and we maintain our belief that all siRNA therapeutic efforts will require access to Alnylam intellectual property for product development and commercialization freedom to operate.

With that, let me now turn the call over to Kleanthis for an update on Regulus. Kleanthis?

Thank you, Barry. As Barry just mentioned, Regulus is an exciting new joint venture formed last year between Alnylam and Isis. The company is focused on the discovery, development and commercialization of microRNA therapeutics, which, in my opinion, is a very important new frontier for pharmaceutical research for we aim to target microRNAs that are normally expressed in the cause of [core] pathway of human diseases.

Regulus formed by combining the strengths and assets of Isis and Alnylam's technologies know-how and intellectual property in the microRNA therapeutics field. Upon launch, Regulus was founded with a very strong scientific advisory board chaired with a Nobel laureate, David Baltimore and including key pioneers in the microRNA field.

I was very pleased to join shortly thereafter as the company's President and Chief Executive Officer to help become the leading company in microRNA therapeutics. I view this as a very rare and exciting opportunity where a new area of biology is converging with maturing ongoing drug technologies.

One reason for my enthusiasm relates to the very unique IP position assembled at Regulus. Indeed, we started out with a commanding IP position in the microRNA space, including greater than 600 issued patents and greater than 300 patent applications exclusively licensed, as I mentioned, to Regulus for using microRNA therapeutics.

More recently, Alnylam and Isis announced that the U.S. Patent and Trademark Office issued claims in the patent application that is derived from the Tuschl III patent series, which covers microRNA and therapeutic model that target these microRNAs.

The U.S. Patent Office also issued an allowance for the so-called Sarnow patent, which covers the role of microRNA-122 as a host factor target for Hepatitis C. Our efforts at Regulus are off to a great start. We are advancing our miR-122 program as a potential development candidate.

Furthermore, we are very pleased with additional scientific progress we've made, including the recent publication in Nature of the discovery of a viral encoding microRNA that acts as an oncogene, representing the first example ever of [such a role] for a microRNA, and perhaps providing more fundamental insight into the link between viral infection and malignant cell transformation.

You should expect a significant number of additional scientific updates on our Regulus efforts, since part of our strategy has been to closely work with the world's best labs in understanding the biology and roles of microRNA as disease targets.

Our launch of Regulus has also caught the significant attention of the broader pharmaceutical industry and we're pleased with both the enthusiasm for the field and the nature of several ongoing discussions.

In short, we believe the microRNA therapeutics will be an important part of the future story for RNA therapeutics in general. And, you should expect that Regulus will lead these efforts with a great -- which will greatly capitalize on this opportunity.

Now, I'd like to turn the call over to John, who'll discuss the Alnylam goals. John?

Thank you, Kleanthis. As you can tell, we are all very proud of our accomplishments in 2007, which, of course, derive from the strength and passion of our great team. In addition to the recent addition of Stuart Pollard at Alnylam and Kleanthis for Regulus, let me mention some additional key hires in 2007.

We hired Eric Raichle our Vice President for Human Resources, Jason Rhodes, our Vice President of Business Development, Philip Chase, our Vice President of Legal, and Donna Ward our Vice President of Intellectual Property. Our Board of Directors was also expanded in 2007 with the election of Dr. Victor Dzau from Duke.

Now, let me wrap up by reviewing our near and mid-term goals. At the recent, JPMorgan conference, we announced our RNAi 2010 initiative -- a set of mid-term goals based on our strong level of confidence in our technology and business. As part of RNAi 2010, we are going to take our scientific leadership on delivery to a whole new level by executing on our current technology collaborations and forming a significant number of new collaborations.

In our clinical pipeline, we expect to have four or more programs in clinical trials, including both siRNA and microRNA therapeutics. On the business side, we expect to form four or more new major partnerships, including broad platform alliances, like our 2007 alliance with Roche, and 50/50 alliances, like our Medtronic relationship. These efforts will advance Alnylam's efforts in bringing RNAi therapeutics to patients and building a top-tier biopharmaceutical company founded on RNAi.

In 2008, we are already well underway with our goals for the year, having reported positive top line Phase II data for ALN-RSV01 in our RSV program. We believe that these data represent human proof of concept with an RNAi therapeutic, but we'll let the data speak for themselves when we present it at a scientific conference later this month.

In addition, we will be advancing our clinical pipeline and scientific leadership with continued Phase II development of our RSV program, and a new IND from our development pipeline. Further, we expect to publish over ten major scientific papers on our progress, including a paper that was just announced today.

Importantly, our success will continue on the IP front, and this, combined with our scientific leadership, will enable creation of at least two new major alliances. Our ongoing discussions are excellent, and we expect to update you on new business partnerships sooner versus later.

And finally, as Patti mentioned, we expect to end the year with over $390 million in cash, which to be clear, excludes the proceeds of major new alliances. All and all, we had an extremely eventful year in 2007 and we expect another exciting year ahead in 2008. In fact, we're only motivated to create more success and we'd be disappointed if we delivered anything less.

Now with that, I'd be happy to take your questions. Operator?

(OPERATOR INSTRUCTIONS)

And your first question comes from the line of Sapna Srivastava of Morgan Stanley. Please proceed.

Hi, it's actually Dave calling in for Sapna.

Hi, Dave.

Hi, how are you doing?

Good.

Just a quick question. You guys have three preclinical programs all of which have a good amount of work already done on them. How are you going about the decision of which one is going to be the next IND, and what are the kind of steps that you're taking to evaluate these? And, when do you think you're going to reach some type of conclusion?

So, Dave, there are in fact three programs that are formally development candidates in the Company and these include our PCSK9 program for hypercholesterolemia, our VSP program for liver cancer, and our HTT program for Huntington's disease. The two of those three -- the two most advanced are the PCSK9 program and the VSP program.

And, those two, in particular, constitute the programs of which our goal externally is to have one IND in 2008. So, these are advancing through studies both GLP studies and also non-GLP studies. They're advancing in scale up and manufacturing with our partners on the outside that are doing the G&P manufacturing. And, we're pleased with the progress. The goal for the year is to have one of these enter the IND stage in 2008.

Akshay, do you want to comment any further on Dave's question?

No, I mean, I think, we have done a lot of work. We've made tremendous progress in terms of delivery and [pharmacological] insight, both with VSP and PCS. And, as the work matures, I think we'll look forward to an IND, [in fact within] the year.

Just one quick follow-up. How much of your decision is going to be based on sort of the effectiveness of the drug versus the crowdedness of the space that you're trying to enter?

Let me ask Barry to answer that.

So, Dave, we think that all of the opportunities that John mentioned -- all of them offer significant product opportunities. So, they are all really good product opportunities. When we make decisions about moving programs forward, we're making decisions based upon the data that emerge.

And, we speed programs forward based upon data or repeat experiments based upon data. As both John and Akshay said, the reason we put that goal out there is, we believe, that out of the programs listed, we'll be able to and we're focused on filing at least one IND.

But, I just, one other point, Dave, is, obviously, we look very carefully at the clinical on that need as well as the commercial opportunities for these programs. And, we've made decisions in the past to -- our VEGF program in AMD, many years ago, to stop that program based on the emergence of Lucentis data and the off-label use of Avastin, and that was a very smart decision.

Right. Okay. Thank you.

Your next question comes from the line of William Sargent of Banc of America Securities. Please proceed.

Hey, Will.

Hi, how's it going, everyone?

Good.

Thank you for taking my question. Congratulations on a great 2007.

Thank you.

Just on looking forward to the goals for 2008, would -- what are your thoughts on potentially partnering the RSV program? And, does that fit in your alliance guidance? Or is that more outside of that program?

Well, it, as you could imagine, with the positive data that we reported as well as in advance of those data, we have been having partnering discussions on RSV. And, the level and quality of those discussions has accelerated quite a bit with the advent of the data.

We are, certainly for the longer term, and we said this very clearly before, we will certainly work with a partner on the RSV program, because we think that the fullest potential of that program is going to be through a partnership. We think there are opportunities for geographic-based partnerships for that program.

And then, also, even partnerships in the U.S. market, where Alnylam retains significant ownership and value commensurate with the value that we've created in that program. And, I think, Will, as you're aware, programs in clinical development with positive Phase II data are very highly-valued assets in the marketplace. And, we obviously believe that there is a significant opportunity for partnerships with that program.

And so, would any partnership, I assuming the terms are right, would that be included in your partnership alliance guidance? Or, would that be external to that?

It would be included therein. And, obviously, when we talk about major alliances as part of that guidance, we are talking about significant alliances --

From R&D --

Right. That would be important and value accretive for everybody.

Understood. Great. Thanks for taking my question.

Yes.

Thanks, Will.

Your next question comes from the line of Mike King of Rodman Renshaw. Please proceed.

Good afternoon, guys, thanks for taking the question. Just wanted to ask. I think, John, you answered my -- one of the questions I was going to ask on an income statement basis, but the $390 million cash use excludes any revenue from major alliances. So, therefore, that's why you're not giving -- in '08 R&D spend guidance. Is that a correct statement?

Yes. Patti, you want to handle it?

That's right, Mike. We have typically given cash guidance, because we think that's most appropriate. We try to help give people indications that -- as we just did on the call that R&D spend is expected to increase in 2008, and for G&A that we expected to not significantly increase from the levels we saw in 2007.

But, we're not going to give a specific line item guidance. Because, as you can also see, R&D expenses and our G&A expenses have been lumpy over the quarters as some given activities going on in the business.

Right. And, I did want to ask -- you had a sequential decline in G&A, I assume that was legal -- you had legal matters in the third quarter, if I remember correctly, that's why it was so inflated.

Yes. The third quarter was a very big legal and business development quarter with both Roche as well as Regulus-related activities and others.

That's right.

Okay. Let's talk about fun stuff now. Can you discuss, as I know you guys are aware I'm a big fan of the Regulus idea, but can you talk about the structure of the joint venture?

And, how when you think when Alnylam shareholders think about Regulus, can they benefit from Regulus as a joint venture? Or, over the long term, does something need to happen with regard to Regulus to really appreciate the full value from an Alnylam shareholder standpoint?

No, it's a great question, Mike. And, let me answer part of it and then ask Kleanthis to chime in as well, because he's got an important perspective here as well since he's building value for Regulus and for Alnylam and Isis shareholders as a result of it.

Mike, Regulus is emboldened with a very important new therapeutic area around microRNA therapeutics, which we really think is a very important new frontier for pharmaceutical research. And, it is very clear that the only way to build maximal value out of that effort was to join our IP technologies and efforts together with Isis.

So, if this were an Alnylam alone effort, or for that matter an Isis alone effort, it would not build the type of value that we think it can build by being a joint effort. Regulus is going to, we believe, be very successful in advancing this new frontier and advancing a pipeline based on this technology and also advancing partnerships based on this technology, and will ultimately likely go down the path of being a public company.

And, obviously, Alnylam and Isis's goals are to have a significant level of ownership in this company as it builds in value. So, there are many good examples in the industry of how those type of relationships can be very beneficial to parent company shareholders. And, we could spend quite a bit of time talking about each example.

But, at the end of the day, what's important is that Regulus builds a great company. That it advances this whole space. That it does so uniquely by having the consolidation of our efforts together with those of Isis, And that we will benefit, we -- Alnylam shareholders, if I can speak for us at this point only, will benefit greatly by the products that come out of that space and our ownership in that effort. Kleanthis, do you want to add anything.

Certainly. Mike, it's a great question. So, let me spend a little bit of time here to give you a long range view. Our goal is to build here an independent and very vibrant company that is a very leading company in microRNA therapeutics.

And, the reason that I'm personally extremely excited about this is, I think for the first time ever, you see a completely new area of biology with so many opportunities converging with technologies bought in the scientific and clinical levels that are mature or maturing.

We directly benefit from everything Alnylam has done as well as what Isis has done on both IP, discovery, delivery, pharmacokinetics, pharmacodynamics, etc. With a goal of building a very high value company, the way, I believe, the shareholders of Alnylam can view this as a benefit back to the parent companies is two-fold.

One has to do with the science technology that we're advancing that immeasurably is going to benefit all three companies involved. Every advance in Regulus is going to be adding a lot of scientific and clinical value to the pipeline of Alnylam and vice versa.

In terms of financial rewards, I think, given some very recent examples, which we just see as stray holes, clearly my goal is to exceed those, you can immediately translate that to some tangible financial returns. I'm referring to the relationship Medarex had with Genmab, and the relationship Human Genome Sciences had with Co Genesis.

So, you're looking at how financially a combined company benefit is just looking at the success of these two companies that were essentially spun out from parent companies and did very, very well. Our goal is to do even better.

Okay. But, I guess, just to put a finer point on it. At some point, the Regulus structure is going to have to change from a joint venture to something else. Wouldn't it?

Yes. So, Mike, I mean we're -- we will transition at an appropriate stage the LLC corporate structure into a C corp. corporate structure, which is a more traditional equity-based structure. Right now, it's certainly immaterial from Alnylam perspective which way it is. It just made more sense to do it this way at least in the near term.

Right.

Mike --

Oh, sorry, go ahead Kleanthis.

It's Barry. Just so, to close that finer point. Our perspective on this and Kleanthis highlighted this is for Regulus to build a significant product-based company. And, this is not a financial play. It's a science and product play.

And, Mike, could we ask you to go back in queue. Maybe there's some other questions.

Sure.

Yes. Thank you.

Your next question comes from the line of Simos Simeonidis of Broadpoint Capital. Please proceed.

Hi, thanks for taking the question and congratulations on a superb year. I had a question on the Phase II trial. You mentioned that you expected that you've got it starting in this first half of the year. I was wondering if you can provide any granularity on the composition of the patient population? You said about, but -- also potential on the design and the size of the trial?

So, Simos, let me turn that over to Akshay to address to the extent that he can. But, what we have not yet disclosed exactly the patient population that we'll being looking at. But, what Akshay can tell you are the range of different adult populations that one would logically look at as potential populations.

And then, very shortly, obviously, when we start that trial, we'll be telling you exactly what population and what the specifics are of the design. So, Akshay, you want to comment.

Yes, John. So, Simos, you're right the adult population, like pediatric patients, is a high unmet need population particularly when we look at important segments like immunocompromised patients.

And there, there are transplant patient, lung transplant patients and other immunosuppressed populations. And, all of them, when they get RSV have very high morbidity and mortality. For example, Bermark has one study can be as high 30% or 40%.

Another important adult area that we have highlighted and has emerged in the last five years or so is the clear recognition that elderly patients over 65 with pre-existing COPD or heart failure are unfortunately at very -- at a high degree risk of RSV and its complications. And, there are about 180,000 hospitalizations in the U.S. annually from those folk, and over 15,000, who unfortunately die.

So, clearly, there several high unmet need populations. And, as John said, in due course and quite soon I suspect, we will be providing more guidance and to choice of population and the type of study we're doing and the rationale underneath all of that.

So, Simos, I think, the bottom line is -- just stay tuned. And, we'll certainly get you that information shortly.

Okay. Great. Thank you.

Your next question comes from the line of Ted Tenthoff of Piper Jaffray. Please proceed.

Great. Thank you very much.

Hey, Ted.

How are you?

Good.

Congratulations. You guys have really assembled quite a phenomenal team there.

Thank you. As you know, Ted, at the end of the day, that drives everything. And, we're very lucky and fortunate and blessed to be in that position.

I couldn't agree more with you. Two questions, if I may. Firstly, Patti, I think you said that the tax rate, in terms of what you'd be recognizing, would be closer to $8 million this year. Can you just confirm that that's what you said?

That's what I said. So, for -- on a cash basis, Ted, what I said was, we'll make some modest federal and quarterly state cash payments that will total about $4 million, but on a GAAP basis, we'll incur federal and state quarterly tax estimates or charges, if you will, totaling up to $8 million in 2008.

Okay. Great. And then, I guess, this one's kind of for the whole team, but Kleanthis also. As you start to look at 2008, and I don't want to pin you down to any budget or anything along those lines, but, obviously, you're in the enviable position of having the talent of both of these two very well established and successful biotech companies.

As you move forward, what are your kind of rate remitting steps? And, how much is it going to cost you to really kind of get out there and stay ahead in the field of microRNA?

Well, Kleanthis, you want to handle that. That seems like a perfect question for you.

It's a loaded question, Ted, but I didn't expect anything else. If you think about a five-year old -- five-year long-term planning and you want to maintain the leadership that was given to us by birth, given the intellectual property, the clinical know-how, the financial support by the two parent companies and the fact that Regulus has access to more than 200 scientists on both sides of the equation, it is a relatively straightforward path.

We are in the middle of modeling that -- of what is it going to take, how's the company going to be looking like, what steps do we need to do to, not only maintain, but enhance the leadership in microRNA. And, I can tell you that we're very excited to build a very unique and very different kind of company that I want to see us as a bellwether for the next wave of franchise names in biotech.

What exactly is it going to take. Allow me a couple of quarters, I'll be -- I can be very, very specific about, but we're using very cost efficient ways to advance our science for the moment.

The rate limiting steps frankly is the biological unknown. We're extremely successful with the talent that we can attract and hire given the response. We have an extremely solid financial position. Really, the critical step is how is the biology of microRNA plays out and what kind of therapeutic opportunities we can exploit.

And, I would just add to that, Ted and Kleanthis, that one of the things that I think is really exciting about Regulus, and there's no question that the biological understanding of the microRNAs is sort of the way the raven they set here is this whole effort advances.

But one of the things that Regulus has done through the initial efforts of both parents is have an extremely networked and externally-oriented set of collaborations that literally cost nothing.

I mean, these are some of the world's top laboratories coming to Regulus to work with Regulus, because Regulus has a tool that allows these laboratories to interrogate the role of microRNAs in vivo. And so, we are unbelievably well position with some of the world's best laboratories on that front.

And, so, we are in a very strong position to be on the leading edge of where that whole biology goes in a way that will be very, very fruitful for Regulus in terms of defining new opportunities. And of course, Regulus's efforts is to then capitalize and translate those discoveries into development programs and clinical programs.

So, it's a wonderful strategy that I think is going to work remarkably well here as it has, of course, for Alnylam in the past. And, I think, it's going to be a strategy that will be important for the future.

Great. Well, good luck with that. And, I'm really looking forward to the full Phase II RSV data.

Absolutely. We're looking forward to presenting it.

Your next question comes from the line of Alan Carr of Needham & Company. Please proceed.

Hi, good afternoon, everyone.

Hi, Alan.

Hi, Alan.

I was wondering if you could elaborate a bit about how clinical work is coming with the systemic programs, particularly with respect to delivery? I remember the last time we met, you mentioned that you had been very careful, that you had all your ducks in a row before you submit an IND in a systemic program.

And, every call is related to delivery. So, my question is -- can you elaborate on what if they stand with that. Is that the rate limiting step? And, you're still on track for getting these into the clinic -- submit an IND by year end?

Yes. Absolutely, Alan. So, these are two -- the two programs in particular that are in our development pipeline right now that are systemic programs are the VSP and the PCSK9 program, both of which are using liposomal formulations to deliver small interfering RNAs to the liver in both cases. And, these are progressing actually quite well.

We are expanding and have obviously advanced the formulations for these systemic delivery programs. We have generated very strong preclinical data for the programs. We've been doing manufacturing and scale up of these programs.

And, where we are right now, is completing GLP tox programs for these efforts in advance of filling INDs. So, we're optimistic and encouraged by what we're seeing. And, we look forward to updating you in the months to come here as those programs advance.

You've said around formulations and all that sort of thing right now, you're just sorting out tox and making a lot of it. Is that a fair characterization?

That's a very fair characterization.

Okay. And, I was wondering --

Alan, interrupt.

That's it. Okay.

Just, we're absolutely at execution mode on those programs.

Sure. Thanks.

Your next question comes from the line of Douglas Chow of Caris & Company. Please proceed.

Hi, thanks. Just to follow up on the discussion about Regulus. I was wondering if you could talk a little bit about the overall strategy for Regulus in '08. And, also, if you could describe how many people are working at Regulus now? And, how you might think the staff levels might change in '08?

So, Doug. Let me just -- let me answer part of that question, then give the rest of it over to Kleanthis. The -- in terms of the specific goals for Regulus this year, neither Alnylam nor Isis have specifically given goals for Regulus for this year. Obviously, it's an effort that's getting started with a new CEO and obviously will be staffing up with other people.

And, we'll certainly provide additional goals in the near term. But, right now, there's no additional granularity around specific objectives for Regulus other than it's clear effort to build a leading company in microRNA therapeutics. So, with that, let me turn it over to Kleanthis to discuss it with the people matters as you asked.

So, one way to view Regulus is a company that is created and gives you benefiting from years of researching in RNA therapeutics by both Isis and Alnylam.

And, a way to characterize Regulus that I like to use a supercharged start-up company given the fact that we have, as I said, access and very close working relationship with 200 scientists from both companies. We have an infrastructure that is provided from either company. So, cost efficiently moving forward our goals in a way that has never been done before.

Let me give you some more specific about strategy. We're here to discover, develop and ultimately commercialize microRNA therapeutics. It is an area of biology that is extremely exciting, but what makes it more exciting is that we actually have the tool books already established to be able to translate that biological knowledge into drugs of high value. We're doing that.

We're working very closely with both parent companies, but building our own independent R&D team, independent management team and have our own goals. Of today, we're about a dozen people completely dedicated to Regulus.

You need to multiply that with the infrastructure and support, tangible support we're getting from both Alnylam and Isis and a variety of activities that any company is involved in at this stage of development. We will almost double that by the end of the year. So, we'll be over 20 people specifically dedicated to Regulus.

Our goal is to identify a handful of therapeutic areas, which become our core focus and also expand that with collaboration with big pharma or buy the companies. And, we'll be disclosing more and more information as we move forward starting already next week when we're presenting at the BIO CEO Conference on Monday.

Great. That's helpful. And, just one follow-up question regarding the GEMINI study. In the results that we're reported, the initial dose was given, I guess, two days before inoculum was given to patient. In the next trial, would that be the case? Or, will it likely administered after the infection?

The naturally-infected study, Doug, is going to be study in naturally-infected people, where the drug is going to be used as a treatment.

Okay.

So, these are going to be individuals that have frank, natural RSV infection.

Okay. Great. Okay. Thank you very much.

And, your next question comes from the line of Pamela Bassett of Canter Fitzgerald. Please proceed.

Actually, my questions have been answered. Thanks very much.

Oh. Thanks, Pamela.

Thank you.

Okay. I think that's it. Let me thank everybody for joining us today. We're certainly excited about the progress that we've made to date, and the milestones we have to look forward to.

And we look forward to updating you in future calls, and certainly and look forward to seeing many of you at our R&D day coming up. And look forward to updating all of you on the GEMINI data, when they're presented at a clinical meeting. Thank you very much.

Ladies and gentlemen. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.